Texas Monitor, 3:3 (Fall 1998)
- Strengths and Weaknesses in the Texas Workers' Compensation System
- Background - Workers' Compensation Reform in Texas
- From the Executive Director
This article is excerpted from An Examination of Strengths and Weaknesses of the Texas Workers' Compensation System. The full report is available from the Research and Oversight Council upon request. You may also order this publication online.
It has now been ten years since Texas began the workers' compensation reform process, and eight years since the Reform Act went into effect. How successful was the reform effort?
This article summarizes a recently completed project by the Research and Oversight Council on Workers' Compensation (ROC) to gauge the overall strengths and weaknesses of the Texas workers' compensation system. The study combined current system data with participant surveys to examine how well the system meets each of the 14 policy objectives identified in the Joint Select Committee report.
Policy objective: The system should promote safety and health in the workplace through an appropriate employer incentive system.
Since 1991, the nonfatal occupational injury and illness rate in Texas has decreased 18 percent from 7.7 injuries per 100 full-time workers in 1991 to 6.3 in 1996. The national average occupational injury/illness rate for 1996 was 7.4 injuries per 100 full-time workers (see Figure 1)
The severity of injuries has lessened as well. The number of indemnity claims (i.e., claims with injuries severe enough to cause a worker to lose at least seven days of work) has decreased approximately 32 percent since 1991 (from 104,214 in 1991 to 71,061 in 1995).
Policy objective: The system should provide broad coverage of employees and work-related injuries and diseases regardless of fault.
Texas remains the only state in which a large percentage of employers are allowed to opt out of the workers' compensation system. 1 The percentage of employers who do not carry workers' compensation coverage has declined from 44 percent in 1993 to an estimated 39 percent in 1996. This change was due mostly to an increase in the number of small employers who reentered the workers' compensation system after previously opting out.
Though some employers have opted not to carry workers' compensation coverage, this does not mean that they do not provide alternative protection to their employees for on-the-job injuries. An estimated 29 percent of employers who do not carry workers' compensation (i.e., nonsubscribers) have a written company policy to pay occupational benefits (income and/or medical) to employees injured on the job.
Since larger employers provide these benefits more frequently than smaller employers, the coverage rate from alternative plans is high. An estimated 71 percent of the employees working for nonsubscribers are covered by some type of policy to pay benefits for occupational injuries.
3. Medical Care and Rehabilitation
Policy objective: The system should provide appropriate and quality medical care directed toward prompt restoration of the workers' physical condition and earning capacity.
Just as the number of income benefit claims established by the Texas Workers' Compensation Commission (TWCC) each year has decreased since the reform, so has the amount of carrier medical losses on workers' compensation claims ($1,167,833,179 in 1991 to $684,382,752 in 1995). Along with a decrease in the number of work-related injuries, cost-containment strategies such as the TWCC medical fee guideline are estimated to have saved the system approximately $757 million since 1992. 2
Even though medical losses on claims have decreased, the average medical cost of a workers' compensation claim has increased from $2,909 for policy year 1988 to $4,051 for policy year 1993. 1993 carrier loss data also indicates that Texas' average medical cost per claim substantially exceeds that of the national average ($4,051 in Texas versus $2,717 nationally). 3
Overall, injured workers surveyed for this report were very pleased with the medical treatment they received for their work-related injuries. Seventy-nine percent of injured workers reported that their healthcare provider gave them adequate medical care that met their needs and 83 percent said that their healthcare provider clearly answered any medical or treatment questions that they had concerning their injury.
One way a workers' compensation system ensures that injured workers receive adequate medical treatment for their injuries/illnesses is to effectively and efficiently resolve any medical disputes between the insurance carrier and the injured worker/treating doctor. Very few (less than 1 percent) of the total medical treatments rendered annually ever result in a medical dispute. This does not include, however, the undocumented number of disputes that never get elevated to the formal medical dispute process at TWCC.
In the past, large amounts of requests for dispute resolution coupled with limited staffing at TWCC caused delays in resolving medical disputes. In recent years, increased attention has been paid by TWCC to reduce these delays. The time it takes to resolve a pre-authorization dispute has decreased from 107 days in 1993 to 44 days in 1997; medical necessity dispute resolution was reduced from 355 days in 1993 to 145 days in 1997; and fee dispute resolution time has decreased from 261 days in 1993 to 113 days in 1997. 4 Insurance carriers and healthcare providers who were surveyed for this report, however, feel that the amount of time it takes to resolve a medical dispute is still unreasonable. (See Figure 2). Most feel that all medical disputes should be resolved within one to three months.
The recent court invalidation of the TWCC hospital fee guideline has resulted in an additional 20-25,000 fee disputes that are currently in the process of being resolved by TWCC medical dispute officers. This five-fold increase in the annual average medical dispute workload has challenged TWCC to redirect resources to handle these fee disputes.
4. Benefit Adequacy
Policy objective: The system should provide: 1) temporary benefits that replace a high proportion of after-tax lost earnings; and 2) benefits for permanent disability that substantially alleviate the economic duress that occurs or may be expected to occur because of the disability.
Compared to other states, Texas has always had a high percentage of workers receiving between 80 and 100 percent of their pre-injury wages. Texas is one of only four states that have few workers with high (i.e., over 100 percent) or low (i.e., less than 80 percent) income replacement rates.
The average income replacement rate for injured workers in Texas who have missed at least four weeks of work is 88 percent, well above the minimum level of 80 percent recommended by the National Commission on Workmen's Compensation Laws in 1972. 5
For those workers whose temporary disability does not last long enough to receive the first week of Temporary Income Benefits (TIBs) retroactively, however, the average income replacement rate is only 41 percent.
5. Benefit Equity
Policy objective: The system should provide similar benefits to claimants in similar circumstances and it should provide benefits that are reasonably proportionate to the severity of the injury.
Overall, most system participants surveyed for this report (with the exception of attorneys) agreed that the current system provides similar types of workers' compensation benefits to injured workers with the same kind of injury/illness.
Differences do exist, however, in the impairment ratings given to injured workers from their treating, insurance and designated doctors. Impairment ratings are used to calculate the amount of Impairment Income Benefits (IIBs) a permanently impaired injured worker is entitled to receive, and are also a factor in determining entitlement to Supplemental Income Benefits (SIBs). (See Table 1.)
This inconsistency in the way impairment ratings are assigned is the source of many workers' compensation disputes, which add additional cost to the system. In 1997, there were 5,462 disputed issues (representing 13 percent of all disputed issues) involving either impairment ratings or date of maximum medical improvement (MMI) at the Benefit Review Conference (BRC) level of the administrative dispute resolution process.
6. Effective Delivery of Benefits
Policy objective: The system should provide both income and medical benefits which are adequate, equitable, and appropriate in a manner which is timely, humane, and cost-effective:
- Temporary, permanent, and medical benefits should be provided promptly.
- The likelihood of disputes should be minimized, but when they occur they should be identified and resolved promptly and fairly.
- All participants should know their rights and responsibilities.
- There should be objective criteria regarding the entitlement to benefits and the amount of the entitlement.
Temporary Income Benefits (TIBs)
Eighty-six percent of 1991 claims had their TIBs paid within the statutory timeframe required for TIBs payments. The median number of days between the date that disability first began to accrue (i.e., the eighth day of disability) and the date of the first TIBs payment has remained stable since 1993 (13 days). 6
Permanent Injury Income Benefits
According to a 1997 TWCC audit of claims involving Impairment Income Benefits (IIBs), 95 percent of IIBs payments were made timely in accordance with the Act and rules. A recent Research and Oversight Council survey of injured workers who received Supplemental Income Benefits (SIBs) found that 54 percent of injured workers agreed that the insurance company generally sent their benefits checks on time, 11 percent were not sure whether their checks were sent timely and 35 percent disagreed that the insurance company generally sent their benefit checks on time.
In general, injured workers thought they received timely medical care after their injury. Approximately 76 percent of injured workers surveyed for this report replied that the current system ensures that injured workers receive adequate medical care in a timely manner.
The number of dispute proceedings held under the new law is significantly fewer than under the old law. Under the old law, approximately 60,000 informal hearings were held each year, compared to 28,175 dispute proceedings (informal and formal) in 1997. 7 In addition, under the old law approximately 14 percent of disputes were appealed to the district court compared to less than 1 percent of disputes since the reforms.
One source of continuing controversy is an injured worker's eligibility to SIBs. Even though a small number of claims (less than 1 percent) have reached the SIBs stage (4,818 workers' compensation claims out of more than 500,000 income benefit claims since 1991), SIBs entitlement disputes account for a disproportionately high number of workers' compensation disputes. In 1997, SIBs entitlement issues represented 18 percent of all the issues disputed at the BRC level and 22 percent at the Contested Case Hearing (CCH) level. According to a recent study by the ROC, over 60 percent of injured workers who have received SIBs have had at least one dispute over their entitlement to these benefits. 8
Since the reforms, attorney representation of injured workers has decreased significantly. Under the old law, over 90 percent of injured workers were represented by attorneys in pre-hearing conferences, while in 1997, only 35 percent of injured workers at the BRC dispute level had attorney representation and 61 percent had ombudsman assistance. Attorney representation is still high for insurance carriers, however (see Figure 3). < /p>
7, 8, 9. Agency Control, Policy Control, System Monitoring
Policy objective: The Industrial Accident Board should have the authority and resources to administer and enforce the law and its rules, including the ability to promptly detect and appropriately address acts or practices of non-compliance on the part of any participant.
Policy objective: Policymakers in the Legislature and the IAB should be able to insure that the system operates in accordance with the law and policies properly established.
Policy objective: The system should provide a mechanism for continued monitoring by and input from business and labor interests.
As a part of the 1989 reforms, the Texas Legislature replaced the Industrial Accident Board with the Texas Workers' Compensation Commission (TWCC) and changed the makeup of the governing board from three full-time members to six part-time commissioners (three commissioners representing employers and three representing wage-earners). The Commissioners' primary responsibilities are to establish rules/procedures to implement and enforce the Texas Workers' Compensation Reform Act.
The 1989 reforms gave the TWCC expanded authority to more effectively implement and enforce the Act and its rules by establishing the TWCC's Compliance and Practices Division, whose responsibilities include identifying, investigating and prosecuting fraud; performing insurance carrier audits; investigating and prosecuting other violations of the Act and rules; and assessing and collecting administrative penalties.
In addition to the TWCC, the 1989 reforms created two additional entities: the Legislative Oversight Committee on Workers' Compensation Insurance to monitor the implementation of the reforms and make legislative recommendations for change, and the Texas Workers' Compensation Research Center to provide timely, unbiased information on the effectiveness of the system. These entities were combined i n 1995 to create the Research and Oversight Council on Workers' Compensation (ROC).
10. Return to Work
Policy objective: The system should encourage the speedy return to employment which is safe, meaningful, and commensurate with the abilities of the accident victim.
The majority of injured workers do not have any difficulty going back to work after their on-the-job injury. According to a recent study of injured workers by the ROC, two-thirds (66 percent) of workers injured in 1996 were currently employed almost two years after their injury. 9
More severely injured workers, however, have a harder time returning to work after their injury. Over one-third (34 percent) of workers injured in 1993 with impairment ratings of 8 to 14 percent reported that they were not currently employed as a result of their injury. 10
Additionally, injured workers who tend to have difficulty returning to work have certain common characteristics. They tend to be older workers; have high impairment ratings; back injuries; low pre-injury wages; low levels of education; "blue collar"-type jobs; inconsistent employment histories; and attorney representation.
Policy objective: The system should provide a system of insurance which is secure and efficient in the delivery of benefits.
When asked about the status of the current insurance market, most insurance carriers who were surveyed for this report agreed that the workers' compensation market is more competitive now than it was in 1991. However, several insurance carriers also reported that increased competition has led to lower profitability. Almost two-thirds reported that they believe the current market is less profitable or about as profitable as it was in 1991. The primary reason carriers cited for this lack of profitability is that fierce market competition ha s driven down competitive pricing on policies to below "break-even" levels. (See Figure 4.)
When insurance carriers were asked to speculate on the effect that the current market climate has had on the pricing of workers' compensation policies, 85 percent said that they believed that the insurance industry is currently underpricing workers' compensation coverage. In addition, most of these carriers (75 percent) also said they believed that underpricing workers' compensation coverage will lead to higher premiums in the future.
To ensure that any underpricing does not cause financial harm, the Texas Department of Insurance (TDI) has a very sophisticated monitoring system in place to detect changes in the early stages that might signal problems in a carrier's financial condition. Additionally, while insurance carriers may currently be writing coverage at a very narrow underwriting profit margin, or even at an underwriting loss, any losses they might incur are compensated by the investment income most insurance carriers are enjoying as a result of a healthy national economy.
12. Cost Internalization
Policy objective: The system should protect and relieve public and private programs of the financial burdens of work-related injuries by appropriately allocating such costs to employers.
Recent studies have shown that some injured workers find it necessary to seek outside forms of financial assistance, other than workers' compensation benefits, in order to make ends meet. A recent ROC study of workers injured in 1996 indicates that injured workers who were separated from employment after their injury (i.e., fired or laid off) tended to receive more financial assistance outside of workers' compensation benefits than injured workers who were never fired or laid off. This financial assistance came in the form of Food Stamps, Social Security Disability Income, unemployment benefits, help from friends and relatives, and welfare. 11
Aside from injured workers who were fired or laid off, severely injured workers also tended to receive more outside financial assistance than workers with less serious injuries. 12
13. Economic Viability
Policy objective: Workers' compensation insurance should be available to all employers at rates that are not burdensome so that the provision of coverage does not hinder the creation of jobs and economic development.
Prior to the 1989 reforms, workers' compensation insurance rates were considered by many to be excessive. In 1988, Texas employers paid over $3 billion in premiums for workers' compensation insurance, more than any other state at the time except California. Since then, this amount has decreased to $1.7 billion in 1997 (direct premiums written). Much of this decrease in premiums can be attributed to deductible plans (introduced first in 1992), negotiated experience modifiers, and other loss-sensitive arrangements in addition to a decrease in rates.
Rates have steadily declined since 1991, to 21.3 percent (as of 1996) below the 1991 workers' compensation benchmark rate. Current information indicates that rates have gone down further. In a recent TDI hearing, staff reported that current workers' compensation rates are at least 30 percent lower than the comparable 1991 benchmark rate.
14. Protection Against Cost Transfer
Policy objective: Costs that are not caused by work-related injuries and illnesses should not be transferred into the system.
The 1989 reforms established the Compliance and Practices Division of the TWCC to identify, investigate, and if necessary assist in the prosecution of fraud.
The most common type of fraud referred to and investigated by the TWCC is injured worker benefit fraud (463 referrals in 1996 and 539 investigations), yet the most expensive type of fraud, according to TWCC investigations, is healthcare provider and employer premium fraud. Detecting and prosecuting these complex fraud schemes requires substantially more resources and prosecutor coordination than worker fraud. 13 Consequently, the system's ability to address these issues is more limited and deserves attention.
CONCLUSION AND POLICY CONSIDERATIONS
It has been almost a decade since the Workers' Compensation Reform Act was passed by the 71st Texas Legislature and significant progress has been made in each of the fourteen policy objectives laid out by the Joint Select Committee on Workers' Compensation Insurance in 1988. Overall, insurance rates have decreased; more employers have come back into the system; there are fewer incidences of occupational injuries; injuries are less severe; fraud detection efforts have increased; benefits seem to be adequate for most workers; and agency control/system monitoring efforts have improved as well.
One critical change has occurred since 1989. The current system is now in a better position to identify system strengths and weaknesses using data and research than ever before. This focus on research and data development allows agencies like the TWCC and the ROC to track individual claims; monitor system issues (such as pre-authorization) and identify possible system trends that will require administrative or legislative change. This approach will let the system as a whole make small, meaningful adjustments for improvement rather than complete periodic system overhauls.
Certain areas, however, will require continuous monitoring and possible policy consideration. These areas include:
Supplemental Income Benefits - The disproportionate number of disputes over an injured worker's entitlement to SIBs is an area of extreme concern in the system. As noted, an injured worker' s entitlement to SIBs is now the most frequently disputed issue at both the Benefit Review Conference (BRC) and Contested Case Hearing (CCH) levels. In 1997, over 8,194 instances of SIBs entitlement disputes were handled at the BRC level and over 3,070 at the CCH level. Resolving these disputes cost the TWCC an estimated $3 million in 1997. 14
The key issue that seems to be driving these disputes is the lack of a defined standard of what constitutes a "good faith effort" to find employment. Since "good faith" is not defined in the statute or in the rules, it must be debated subjectively in a case by case manner.
To add to this problem, the number of disputes is expected to increase until late 1999 when a significant number of SIBs recipients from 1991 will have reached the 401 week statutory maximum for benefits. Once that maximum has been reached, the number of SIBs claimants should stabilize since these claimants will exit the system at about the same rate as new ones enter.
The TWCC is currently in the process of formulating new rules which should have some impact on the number of SIBs disputes. If these rules do not pass, or if they do not reduce the number of SIBs disputes, then legislation may be necessary to correct the problem.
Impairment Ratings and AMA Guides - According to the AMA, Texas is the only state that currently uses the third edition, second printing of the AMA Guides (dated February 1989). There are more current versions including a revised third edition and a fourth edition. There is some debate as to whether the variation in impairment ratings noted previously may be due, in part, to use of an outdated version of the Guides or to other factors.
As research has shown, injured workers tend to receive higher impairment ratings from their treating doctors and lower impairment ratings from the insurance doctors, while TWCC designated doctors' impairment ratings are generally closer to the rating given by the treating doctor. It appears that there are financial incentives at work here as well. A higher impairment rating given by a treating doctor means more benefits for the worker while the opposite is true for an insurance doctor's impairment rating.
More research is needed to determine whether there are other effects influencing impairment ratings as well, including the medical specialty of the doctor giving the impairment rating, and the experience that the doctor has with the workers' compensation system and the mandated version of the AMA Guides. In short, this appears to be a controversial area that has not gone away almost eight years after the impairment rating system was established. Healthcare providers have had adequate time to accustom themselves to the impairment rating process and the Guides, yet the frequency of impairment rating disputes is still high. Additional quality control or peer review mechanisms should be considered to reduce the disparity in ratings.
Adequate Pricing of Workers' Compensation Coverage - Survey results from insurance carriers identify the possibility that certain carriers are underpricing their coverage in a very fiercely competitive marketplace. While TDI has a sophisticated mechanism in place to address this issue, additional information will be required to determine whether underpricing occurs and if so, what effect it may have on reserving practices and future workers' compensation premiums. Not enough information exists today to validate this assertion. This will remain an issue for monitoring purposes.
Reducing System Complexity - Even in a complicated system such as workers' compensation, paperwork and procedures can be user-friendly. More attention can be paid to ensuring that the system is accessible to all types of people with all types of educational backgrounds. Simply put, injured worker forms should be easy to read for all workers, and healthcare provider paperwork should be reduced to allow more time for quality medical care instead of "paper-pushing." Additionally, TWCC has begun a process to review rules and administrative processes to adapt to the lessons learned over the past seven years. This should open the door to simplification, better use of automation, and improved monitoring.
Return to Work Issues - Although most claimants who miss work because of their injury are able to return to work without much difficulty, there is a segment of permanently impaired workers who have problems going back to work. As a result, these workers receive more income benefits and depend more heavily on outside sources of financial assistance than less severely injured workers. A few of these workers will reach their statutory maximum limit of 401 weeks this year and will no longer be eligible for further workers' compensation income benefits.
It appears that the key to successful return to work for many injured workers is the support given to them by their employer after an injury. Employer programs such as modified light duty assignments and job retraining have both been statistically associated with good return-to-work experience. Texas may want to encourage employers to provide these types of programs for their employees by monitoring the success of Oregon's Preferred Worker Program or the Employer at Injury Program.
Medical Dispute Resolution - Although the TWCC has made progress in reducing the amount of time it takes to resolve a medical dispute, many insurance carriers and healthcare providers surveyed for this report feel that the process is still too lengthy. TWCC currently has 15 staff members (three of which handle administrative hearings at the State Office of Administrative Hearings exclusively) dedicated to resolving medical disputes. Additional staff and/or a change in the medical dispute resolution process may be necessary in order to ensure that dispute delays do not adversely impact an injured worker's medical care or ability to return to work quickly and safely.
Medical Costs - While total medical costs have decreased since the reforms (as a result of fewer claims being filed), medical costs in Texas are still high compared with the rest of the nation. Additional research and monitoring will be necessary to pinpoint the areas that have inflated Texas medical costs.
In response to growing concerns from employers about high workers' compensation costs and from labor interests about low levels of benefits, in 1987 the 70th Texas Legislature appointed the Joint Select Committee on Workers' Compensation Insurance to conduct an extensive two-year study on problems with the system. Its recommendations formed the basis of the Texas Workers' Compensation Reform Act, which was adopted by the 71st Texas Legislature in 1989 and went into effect on January 1, 1991.
Like many states, the Texas workers' compensation system underwent major reform in the late 1980s and early 1990s. At this point, the easy gains in the success of the reform are behind us. The tougher areas that require tuning are ahead. To meet this challenge, the Research and Oversight Council is working hard to achieve a better "handshake" between our research and our oversight functions. Problems identified through oversight activities become the focus of research projects; the findings from research drive policy recommendations.
To this end, we're moving to a longer planning cycle for research to enable us to get a better handle on long-ter m, system-wide developments and trends. At the same time, we plan to provide a yearly "snapshot" of the system through an annual report that will focus on key indicators. In these ways, we can help ensure that the reforms envisioned by policymakers are realized to the benefit of all working Texans.
- New Jersey has a single law which includes two alternatives: 1) the typical workers' compensation statute; and 2) a form of employers' liability based on traditional common law remedies. It is required that every employer choose one of the two options; however, all employers in the state have thus far opted for the workers' compensation statute. See Research and Oversight Council on Workers' Compensation, Annual Nonsubscription Survey: 1996 Estimates, 1996.
- Texas Workers' Compensation Commission, System Data Report, as of December 1997.
- See National Council on Compensation Insurance (NCCI), Annual Statistical Bulletin, 1993 and 1998 editions.
- Texas Workers' Compensation Commission, System Data Report, as of December 1997.
- For the purpose of this analysis, employers were categorized into three size categories: small employers (i.e., less than 50 employees), mid-sized employers (i.e., 50 to 100 employees) and larger employers (i.e., more than 100 employees).
- See Section 408.082, Texas Labor Code.
- See Research and Oversight Council, Before and After Reform in Texas, 1998.
- See Research and Oversight Council, Supplemental Income Benefits: Statistical Update and Survey Results (August 1998).
- See Research and Oversight Council on Workers' Compensation, An Analysis of Workers Who Were Fired or Laid Off After a Work-Related Injury, 1998.
- See Research and Oversight Council on Workers' Compensation, An Analysis of Texas Workers with Permanent Impairments, 1996.
- See Research and Oversight Council on Workers' Compensation, An Analysis of Workers Who Were Fired or Laid Off After a Work-Related Injury, 1998.
- See Texas Workers' Compensation Research Center, "Economic Outcomes of Injured Workers with Permanent Impairments," The Research Review, August 1995.
- See Research and Oversight Council on Workers' Compensation, Fraud in the Texas Workers' Compensation System, 1998.
- This estimate uses the average direct and indirect cost incurred by TWCC to hold a BRC or a CCH dispute proceeding. It assumes that each SIBs entitlement issue requires its own dispute proceeding for resolution.
This page was last updated on December 9, 2002.
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